Gold eased on Monday after topping $1,000 last week, but eyes remain on the possibility of a record high as investors flock to the metal amid tumbling share prices.
As financial markets melt down — the Dow Jones industrials and European shares slid to six-year lows last week — the appetite for gold has helped it rise 12 percent this year despite weakening industrial and luxury demand.
"Gold is fundamentally supported by investment flows mainly related to strong investor interest as a safe-haven asset," said David Moore, a commodities analyst at Commonwealth Bank of Australia.
Spot gold was at $990.85 an ounce at 0230 GMT, down 0.6 percent from New York's notional close on Friday, as stock markets rallied on a report that the U.S. government could take as much as a 40 percent stake in Citigroup Inc.
On Friday it hit $1,005.40, just 2.5 percent below the all-time high of $1,030.80 an ounce set in March last year.
Volumes of commodity exchange-traded funds and the performance of the equities market were key to gauging how far gold prices could rise and how fast, said Yuichi Ikemizu, Tokyo branch manager at Standard Bank Plc.
"If stocks continue to fall, gold will keep rising," he said.
Underlining the move from other assets into the precious metal, a ratio of gold against the S&P 500 index rose to its highest level since September 1990, and the gold/oil ratio was at its loftiest since December 1998, according to Reuters data.
"I don't know high high and fast gold prices will rise. It will depend on ETFs, as money which was not flowing into gold before is flocking into gold via ETFs," Ikemizu said.
Exchange traded funds allow easy access to gold holdings via a stock exchange-listed fund, and are a key gauge of investor interest in the metal.
The world's largest gold-backed ETF, SPDR Gold Trust, said holdings were 1,028.98 tonnes as of Feb. 22, level with the record high of late last week.
Further evidence of the gold market's strength came from data showing that speculative gold players boosted their net long positions to 165,921 lots on gold futures traded on COMEX at Feb. 17, up from 163,622 a week earlier.
The main pressure on gold comes from falling consumer and industrial demand, which could cause prices to fall back from their recent highs.
World Gold Council data last week showed that in 2008 jewellery demand fell 11 percent in tonnage terms while industrial demand also fell 7 percent on reduced spending on items such as laptops and mobile phones.
